Zim seeks World Bank grace period

Finance and Economic Development minister Mthuli Ncube is renegotiating repayment terms of the Lima arrears and debt settlement strategy amid revelations Zimbabwe has less than two years to access an African Development Bank (AfDB) ring-fenced bridge loan after settling its overdue obligations to the bank.

Ncube has requested a grace period for Zimbabwe to settle World Bank arrears, three months after repaying the $680 million AfDB arrears.

Zimbabwe is currently facing economic headwinds that have left the government sitting on the edge. The debt-ridden country is now making frantic efforts to access fresh funding to stimulate economic growth.

Two years ago, the AfDB agreed to ring-fence Transition Support Facility Pillar II resources for arrears clearance of Somalia, Sudan and Zimbabwe on a first come, first served basis. To get new funding from AfDB, Zimbabwe—classified as one of the vulnerable economies on the continent together with the other two African countries—needs to clear its arrears first before December 2020 when the funds are still available.

Information gathered by this paper shows that Ncube, who attended the International Monetary Fund/World Bank annual meetings that were held in Nusa Dua, Bali, Indonesia from October 8 to 14 pushed for the relaxation of the Zimbabwe arrears clearance plan agreed in Lima, Peru in 2015.

The country is saddled with a debt stock of $16,9 billion, with external debt accounting for approximately $7,4 billion. Out of this, approximately $5,6 billion is in arrears.

Zimbabwe settled its International Monetary Fund (IMF) arrears of $107,9 million in November 2016. It owes the World Bank ($1,3 billion), AfDB ($680 million) and $308 million to the European Investment Bank. In the international financial architecture, the three international financial institutions—IMF, World Bank Group and AfDB—enjoy the preferred creditors status which means that their arrears have to be cleared first before any other creditor could be considered for payment. They should be cleared simultaneously, the Pari Passu rule.

Sources privy to the reengagement process told Business Times that Zimbabwe, with the assistance of the World Bank Group, organised a Round Table Discussion on the margins of the IMF/World Bank Annual Meetings to fully engage creditors on the possibility of coming up with an agreed arrears clearance road map.

The discussion was attended by representative countries of United States of America, United Kingdom, France, Germany, South Africa, Sweden, Norway, Japan, Italy, Finland; Belgium and Netherlands.

The creditors, sources said, emphasised that they were looking forward to seeing government “walking the talk” in implementing political and economic reforms. Ncube could not be reached for comment.

“Zimbabwe requested for a more accommodative treatment under the Pari Passu principle and this received positive consideration from the creditors, wherein they agreed that Zimbabwe can use the sequential approach to clear World Bank and AfDB arrears, starting with the AfDB then clearing the World Bank within three months,” a source from an IFI said.

“The Finance minister implored upon the World Bank Vice President for Africa Hafez Ghanem to reconsider on their insistence to apply the Pari Passu principle on the clearance of the remaining arrears to the World Bank Group and the African Development Bank.

He emphasised that variation on the Pari Passu principle would allow the country to clear the AfDB arrears and thereby benefit from the AfDB Pillar II resources.”

Ghanem, sources said, told Ncube that he was not going to insist on the Pari Passu principle and he also pledged to support government’s revenue mobilisation measures as well as wage bill containment.

Sources said Ncube also met with the AfDB Chief Economist and Vice President Celestin Monga and the regional bank expressed its willingness to ring-fence Pillar II resources for the clearance of arrears to Zimbabwe until December 2020.

“The country is moving with speed to mobilise the bridge loan that will allow us to clear the AfDB’s $680 million arrears, to be able to access the Pillar II resources before the other two targeted countries do so,” another source who attended the meeting said.

“Ncube then agreed that once the other processes are in place, Zimbabwe will then write to the AfDB during the first half of 2019, informing the regional bank of its intention to clear their arrears. This again will depend on the flexibility of the Pari Passu principle.”

It is also understood that Ncube also met African Export-Import Bank president Benedict Oramah in Bali who expressed his commitment to provide a bridge loan to clear the $680 million AfDB arrears as part of the debt and arrears clearance strategy.

After settling arrears with the World Bank, IMF and AfDB, Zimbabwe will shift its focus on engaging other creditors, namely those under the Paris Club who are owed $2,7 billion and Non Paris Club who are owed $700 million.